G.V. Seethapathy, J.
1. This appeal is directed against the judgment and decree dated 15-4-2002 in OS No. 90 of 1996 on the file of the Court of I Senior Civil Judge, City Civil Courts, Hyderabad, wherein the suit filed by the appellant herein for recovery of a sum of Rs. 3,48,533/- was dismissed with costs.
2. The appellant filed the suit with the following averments: On application of the 2nd defendant, who is the Managing Partner of first defendant, term loan of Rs. 2,30,000/- was sanctioned by the plaintiff bank for business purpose, on hypothecation of stocks and machinery and personal guarantees offered by the Defendants 2 to 8 apart from mortgage of the plaint schedule property belonging to 8th defendant. The defendants have executed general agreement for grant of medium term advance on 31-3-1984, ancillary agreement dated 31-3-1985, and guarantee agreement for small industrial advances dated 31-3-1984. That apart, 8th defendant also created equitable mortgage in respect of his house property as collateral security for the loan. The defendants also executed a letter of confirmation of balance on 6-1-1988, 30-9-1989 and revival letters on 30-9-1986 and 30-8-1989. In spite of several demands, the defendants did not repay the loan. The 2nd defendant by his letters acknowledged the availing of loan and requested for waiver of substantial amount of interest. The plaintiff bank got issued a legal notice on three occasions, but the defendants did not repay the debt.
3. The defendants 1 to 4, 6 and 7 filed written statement admitting that the 2nd defendant availed the loan amount on behalf of first defendant firm and also executed the suit documents except the execution of deed of guarantee by defendants 3, 4 and 6. It is further pleaded that 8th defendant never created any equitable mortgage in respect of plaint schedule house property and that the plaintiff bank ascertained the financial status of 8th defendant and in that connection, 2nd defendant, who is related to 8th defendant gave original sale deed dated 6-2-1978 to the plaintiff for the purpose of verification and return. The plaintiff bank, however, failed to return the same and treated it as an equitable mortgage, which in fact was never created. The defendants further pleaded that the 2nd defendant has repaid the entire principal amount and major portion of interest by March 1988. The industry became sick and it was intimated to the plaintiff. Except small amount towards interest, the rest of the debt was discharged. The plaintiff is not entitled to claim interest at 19% per annum with quarterly rests.
4. The 8th defendant filed separate written statement contending that he never created any equitable mortgage of the plaint schedule house property belonging to him for the suit loan and the sale deed was given to the bank for the purpose of verification of his financial capacity to stand as a guarantor. He executed guarantee agreement in 1984 and revising the same in 1986 and 1989 and thereafter there was no revival of the guarantee and as such the suit is barred by time against him.
5. The suit against 5th defendant was dismissed.
6. Basing on the pleadings, the trial Court framed the following issues for trial.
1. Whether the suit claim is barred by time?
2. Whether the interest claimed is usurious and penal?
3. Whether the defendant No. 8 deposited his title deeds with an intention to create equitable mortgage?
4. Whether the suit amount is correct and plaintiff is entitled to decree as prayed for?
5. Whether the defendants are not liable for the suit amount?
6. Whether the defendants are entitled to installment decree? If so at what rate?
7. To what relief?
7. PW. 1 was examined and Exs. A1 to A29 were marked on behalf of the plaintiff. DWs.1 and 2 were examined, but no documents were marked on behalf of defendants.
8. On consideration of the evidence on record, the trial Court gave finding on issue No. 3 that the plaintiff failed to prove creation of equitable mortgage by 8th defendant in respect of the suit property and on issue No. 1, the trial Court held that the suit is barred by time and on issue Nos. 2 and 4, the trial Court held that the statement of account filed by the plaintiff is not correct and claiming interest by the plaintiff bank with quarterly rests is not tenable; on issue No. 5 the trial Court held that the defendants are not liable to pay the suit amount and consequently issue No. 6 should not arise for consideration. In view of the above findings, the suit was dismissed with costs.
9. Aggrieved by the same, the plaintiff bank preferred the present appeal.
10. Arguments of the learned Counsel for the appellant and respondents are heard. Records are perused.
11. Point for consideration is whether the defendants created any equitable mortgage by deposit of title deeds and whether the suit is in time?
12. The admitted facts may be stated thus:
13. The first defendant is a partnership firm doing business in X-ray and ECG Clinic. The defendants 2 to 6 are the partners of first defendant firm as per Ex.A2. The firm availed loan of Rs. 2,30,000/- from the plaintiff bank for the purpose of business. The 2nd defendant made an application for the loan under Ex.A1. The loan was sanctioned by letter Ex.A3. The 2nd defendant executed a general agreement for medium term loan by hypothecation of movables etc., under Ex.A4. The 2nd defendant also executed ancillary agreement for medium term loan and pledged all movable machinery under Ex.A5. The defendants 7 and 8 are stated to be the guarantors for the loan and they executed guarantee agreement Ex.A6. The 2nd defendant executed a letter of confirmation under Ex.A7 dated 6-1-1988 confirming the balance due of Rs. 1,73,809.39 and a similar confirmation letter Ex.A8 confirming balance due as on 30-9-1989 in a sum of Rs. 1,31,044.60. The 2nd defendant executed revival letters Ex.A9 dated 30-9-1986 and Ex.A10 dated 30-8-1989. Exs.A9 and A10 are signed by the guarantors, defendants 7 and 8 also. The 2nd defendant addressed letters Exs.A11 to A14 to the plaintiff bank seeking partial waiver of interest towards final settlement. The plaintiff got issued a legal notice under Ex.A15 demanding payment of the balance due in a sum of Rs. 1,31,044.60. The 2nd defendant gave a reply Ex.A14 seeking permission to repay with reduced interest in 36 monthly installments. The plaintiff got issued further legal notice Ex.A16 dated 18-2-1991 demanding outstanding balance amount of Rs. 1,41,437.65. The plaintiff got issued another notice Ex.A17 dated 1-3-1991 wherein it is stated that 8th defendant deposited original documents of title with an intention to create equitable mortgage. The plaintiff issued further notice Ex.A18 dated 3-12-1994 demanding payment of outstanding amount of Rs. 2,83,618/-. Exs.A19 to A22 are postal acknowledgements of some of the defendants and Exs.A23 to A26 are notices returned unserved of defendants 4, 5, 7 and 8. The defendants got issued a reply notice Ex.A27 denying that any equitable mortgage was created and also denying their liability to pay the suit amount. Ex.A28 is the statement of account showing outstanding balance of Rs. 3,48,533/- as on 31-1-1996. Ex.A29 is the sale deed dated 6-2-1998 in favour of 8th defendant, which is said to have been deposited with the plaintiff creating equitable mortgage. As the defendants failed to repay the outstanding balance, the suit was filed on 30-1-1996.
14. The suit is filed seeking a preliminary decree of mortgage in respect of plaint schedule property the title deed in respect of which i.e., Ex.A29 is said to have been deposited with the plaintiff for creating equitable mortgage and also for personal decree against the defendants for payment of the suit amount. The cause of action for the suit is said to have arises on 31-3-1984 when the defendants executed the suit security documents and availed term loan facility, when the 8th defendant created equitable mortgage over the plaint schedule property and also on subsequent dates when the defendants are said to have executed letters on confirmation of balance and also revival letters. The defendants categorically denied deposit of title deed Ex.A29 belonging to 8th defendant with the plaintiff with an intention to create any equitable mortgage and pleaded that as 8th defendant stood as guarantor for the loan, the title deed was furnished to the bank for verification of the solvency of 8th defendant and return the same. It is further pleaded in the written statement that 2nd defendant has been repeatedly asking the bank to return the original sale deed Ex.A29 and the plaintiff has been promising to return but failed to do so and the plaintiff is now falsely pleading that the said document was deposited for creation of equitable mortgage. Eighth defendant filed a separate written statement denying that he ever gave his title deed for the purpose of creation of equitable mortgage and that he executed only agreement of guarantee in favour of plaintiff in 1984 and revived his guarantee agreement in 1986 and 1989 and subsequently no further revival was made and the suit is barred by time. He further pleads that he never deposited the title deed with the plaintiff bank and he only handed over to 2nd defendant for the purpose of showing it to the plaintiff to satisfy themselves about the financial soundness of 8th defendant, who was standing as a guarantor and after scrutiny of the title deed, the plaintiff accepted the guarantee offered by 8th defendant, but failed to return the title deed. In view of the categorical denial of creation of any equitable mortgage by deposit of title deed by the defendants, the burden squarely lies on the plaintiff to establish that 8th defendant has in fact deposited his title deed Ex.A29 with the plaintiff bank with an intention to create an equitable mortgage.
15. PW.1 the only witness examined on behalf of the plaintiff bank was not the Branch Manager at the time of sanction of the loan or at the time of filing of the suit and he gave evidence only based on the records. In the cross-examination PW. 1 categorically admitted that he is not aware of the facts of the case personally. He could not even say who was the officer of the plaintiff bank, who filed the suit. The officer of the bank who was responsible for sanction of the loan or the officer who filed the suit has not been examined to show that the loan was sanctioned only on the strength of the mortgage. PW. 1 admitted that revival letters are to be obtained within three years to save limitation. He further admitted that the last revival letter was Ex.A10 dated 30-8-1989 and the last confirmation letter was Ex.A8 dated 30-9-1989. Subsequent thereto-2nd defendant addressed letters Exs.A11 to A14 admitting the liability and seeking concession by way of reduction of interest. The last of such letter was Ex.A14 dated 5-1-1990. Subsequent thereto there has been no acknowledgment of liability by the defendants either by way of revival letter or confirmation letter or part payment. Ex.A28 copy of the account shows that last part payment was made on 23-7-1990 in a sum of Rs. 5,000/- and subsequently, there has been no payment made. The suit filed on 31-1-1996 is beyond the period of three years either from the date of last payment or the date of last acknowledgment of liability under Ex.A14.
16. In order to save the suit from the bar of limitation, the plaintiff contends that there has been a creation of equitable mortgage by way of deposit of title deeds on 31-3-1984 and the suit having been filed within 12 years thereafter, is in time. According to PW. 1 for creating equitable mortgage, they obtained a title deed of the party and that there are no other formalities. He admitted that there is no confirmation letter Ex.A8 that he deposited title deed to create equitable mortgage. He denied the suggestion that it is necessary to obtain a letter of confirmation from the party who created mortgage over the property. The 8th defendant as DW.2 states that the 2nd defendant is his brother-in-law and he stood as guarantor to the loan obtained by first defendant firm and he never mortgaged his property in favour of the plaintiff and 2nd defendant took his title deed for the purpose of showing it to the bank. The 2nd defendant examined as DW.1 also deposed that 7th and 8th defendants stood as guarantors and 8th defendant never created any equitable mortgage of suit property. He further deposed that the plaintiff obtained title deed of 8th defendant to know his financial condition for the purpose of accepting him as a guarantor. Admittedly, there is absolutely no document executed by 8th defendant confirming that he deposited his title deed Ex.A29 with the plaintiff with an intention to create equitable mortgage over the suit property.
17. Learned Counsel for the appellant strongly relies upon Ex.A1 loan application, Ex.A9 and Ex.A10 revival letters and also an extract of title deed register which is sought to be filed by way of additional evidence through CMP No. 11655 of 2004 under Order XLI Rule 27 CPC to show that the title deed Ex.A29 was in fact deposited with an intention to create equitable mortgage. Ex.A1 is the loan application made by 2nd defendant wherein against Column 12-A regarding security offered, it is stated 'equitable mortgage of property' and again column 12-B, it is stated that as 'personal guarantee of 7th defendant'. Eighth defendant did not sign Ex.A1. Even the name of 8th defendant is not mentioned as mortgagor in column 12 of Ex.A1. Though the name of 7th defendant is mentioned in column 12-B as personal guarantor, defendants 7 and 8 are not the parties to Ex.A4 general agreement of Ex.A5 ancillary agreement regarding pledge of movables. They signed Ex.A6 guarantee agreement agreeing to furnish guarantee to the facility of loan. Clause 7 of Ex.A6 states that 'the guarantee hereby given is independent and distinct from any security that the bank has taken or may take in any manner whatsoever whether it be by way of hypothecation pledge/or mortgage'. Ex.A6 therefore has nothing to do with the alleged mortgage by deposit of title deeds and it is only a personal guarantee. Exs.A9 and A10 are no doubt signed by 7th and 8th defendants along with first defendant, represented by 2nd defendant-borrower. The revival letters Exs.A9 and A10 show that defendants 7 and 8 signed as guarantors and not as mortgagors. Exs.A9 and A10 show that the first defendant borrowed the loan from the plaintiff secured by hypothecation-cum-guarantee/mortgage-cum-guarantee/pledge/mortgage/hypothecation under deed and guaranteed by defendants 7 and 8. Though the name of 7th defendant is also mentioned in the preamble of Ex.A9, her signature is not taken and Ex.A9 contains the signature of 8th defendant alone. The name of 7th defendant is not mentioned at all in Ex.A10. The columns, which are not applicable, have not been struck off and it is not known in respect of which of the various kinds of security mentioned therein, 8th defendant is purported to have acknowledged his liability under those documents. The column pertaining to the deed under which the security is offered is left blank. In other words Exs.A9 and A10 do not specify that 8th defendant signed those revival letters in respect of the alleged mortgage of the suit property. As rightly contended by the learned Counsel for the defendants, Exs.A9 and A10 can be construed as revival letters in respect of personal guarantee offered by 8th defendant under Ex.A6. Had not defendants 7 and 8 figured as guarantors under Ex.A6 there would have been some force in the contention of the learned Counsel for the plaintiff that Exs.A9 and A10 are in respect of mortgage, because there was no occasion for 8th defendant to sign Exs.A9 and A10, otherwise. When the 8th defendant stood as guarantor offering personal guarantee under Ex.A6 which is independent of any other security, his execution of Exs.A9 and A10 cannot be correlated to the alleged mortgage when the said documents do not specifically state so. There is absolutely no reason as to why the plaintiff bank has not obtained any letter from the first defendant confirming the creation of equitable mortgage by deposit of title deeds.
18. It is significant to note that in the first legal notice Ex. A15, there is absolutely no reference to creation of equitable mortgage, though the said notice was issued to 8th defendant also. In Ex.A15, it is stated that defendants 7 and 8 are the guarantors for due payment of the outstanding loan amount. If really 8th defendant created equitable mortgage by depositing his title deeds, there is absolutely no reason as to why the same is not mentioned in Ex. A15 and why claim is not based thereon. It is only in the notice Ex.A16 dated 18-12-1991 that a reference was made to mortgage by 8th defendant.
19. Learned Counsel for the appellant-plaintiff seeks to place strong reliance on the extract of title deed register sought to be filed by way of additional evidence through CMP No. 11655 of 2004. The respondents-defendants filed a counter opposing the said application and inter-alia contending that the document was said to be in the custody and knowledge of the plaintiff, but it was not filed before the trial Court and no reason or explanation is offered and so the requirements of Order XLI Rule 27 CPC for receiving the said document by way of additional evidence is not complied with. In the affidavit filed in support of the application, there is absolutely no reason or explanation furnished as to why the said document was not placed before the trial Court, though, admittedly, it was in the custody of the plaintiff's bank itself. Order XLI Rule 27 CPC mandates that the parties to an appeal shall not be entitled to produce additional evidence whether oral or documentary in the appellate Court. However, under certain exceptional circumstances, the appellate Court may allow such evidence or documents to be produced and those exceptions are:
(a) the Court from whose decree the appeal is preferred has refused to admit evidence which ought to have been admitted, or
[(aa) the party seeking to produce additional evidence, establishes that notwithstanding the exercise of due diligence, such evidence was not within his knowledge or could not, after the exercise of due diligence, be produced by him at the time when the decree appealed against was passed, or
(b) the appellate Court requires any document to be produced or any witness to be examined to enable it to pronounce judgment, or for any other substantial cause.
20. As the document was not produced before the trial Court at all, the question of trial Court refusing to admit does not arise. Therefore clause 'a' has no application. As the document was admittedly available in the custody of plaintiff's bank even at the time of trial of the suit, it cannot be said that in spite of exercise of due diligence the document was not within the knowledge or could not be produced by plaintiff before the trial Court. Therefore, clause 'aa' also has no application. It is not the case where the appellate Court required the document to be produced and there is also no other substantial cause which compels the Court to receive the document, especially, when the affidavit filed in support of the application is silent as to the reason or explanation for non-production of the said document before the trial Court, though, it was admittedly available with the plaintiff. The plaintiff had ample opportunity before the trial Court to adduce all the necessary evidence and they filed number of documents, but did not choose to file this particular document, which is now sought to be adduced by way of additional evidence for the reasons best known to themselves.
21. In State of Gujarat v. Mahendrakumar Parshottambhai Desai, 2006 AIR SCW 2169, the Apex Court held as follows:.Reliance was placed on the judgment of this Court in Municipal Corporation of Greater Bombay v. Lala Pancham and Ors. wherein this Court held that though the appellate Court has the power to allow a document to be produced and a witness to be examined under Order XLI Rule 27 CPC, the requirement of the said Court must be limited to those cases where it found it necessary to obtain such evidence for enabling it to pronounce judgment. This provision did not entitle the appellate Court to let in fresh evidence at the appellate stage where even without such evidence it can pronounce judgment in the case. It does not entitle the appellate Court to let in fresh evidence only for purposes of pronouncement of judgment in a particular way. The High Court referred to the earlier proceedings before various authorities and came to the conclusion that though the appellants had sufficient opportunity to bring the evidence on record, for reasons best known to it, the State did not produce the entire evidence before the trial Court and it was only 8 years after the dismissal of the suit that the applications were filed for adducing additional evidence in the appeal. The High Court, therefore, dismissed the applications for adducing additional evidence.
22. In the above case it was found that the documents sought to be brought on record were not documents, which were discovered later or which came into existence after the filing of the suit and they were part of the Government records and they could have been produced in the suit. The view that Order XLI Rule 27 CPC cannot be invoked by a party to fill up the lacunae in his case was also endorsed. The rejection of the application for adducing additional evidence at the stage of appeal on the ground that it was intended only to fill up the lacunae in the case was upheld in the above case.
23. In the present case also the document sought to be adduced as additional evidence in this appeal was admittedly available with the plaintiff in their custody forming part of their records, even at the time of trial of the suit and no explanation is offered for not producing the same before the trial Court. It is only after the suit was dismissed holding that the plaintiff failed to establish their plea of mortgage that the appellant has come forward with the present application under Order XLI Rule 27 CPC about two years after filing of the appeal, supported by an affidavit, which is bereft of any grounds justifying the delayed production of the documents. It is obvious that the said document is now sought to be filed only to fill up the lacunae in the plaintiff's case. Even otherwise, the additional document, which is purported to be a true copy of the details of the document deposited, does not even show that it was a true extract of register maintained in the regular course of transaction. The original register is not produced before the Court. Admittedly, the said document does not contain the signature of 8th defendant in token of his acknowledging that the document was deposited with an intention to create mortgage. It is only the self-serving document, which does not contain the signature of 8th defendant. The said document sought to be produced by way of additional evidence cannot therefore be received at this stage. CMP No. 11655 of 2004 is therefore, dismissed.
24. In United Bank of India Ltd. v. Lekharam Sonaram & Co. and Ors. : AIR1965SC1591 , the Apex Court held as follows:
A mortgage by deposit of title deeds is a form of mortgage recognized by Section 58(f) of the Transfer of Property Act which provides that it may be effected in, certain towns (including Calcutta) where a person 'delivers to a creditor of his agent documents of title to immovable property with intent to cease a security the law implies a contract between the parties to create a mortgage and no registered instrument is required under Section 59 as in other classes of mortgage. It is essential to bear in mind that the essence of a mortgage by deposit of title deeds is the actual handing over by a borrower to the lender of documents of title to immovable property within the intention that those documents shall constitute a security which will enable the creditor ultimately to recover the money which he has lent. But if the parties choose to reduce the contract to writing, this implication of law is excluded by their express bargain, and the document will be the sole evidence of its terms. In such a case the deposit and the document both form integral parts of the transaction and are essential ingredients in the creation of the mortgage. It follows that in such a case the document which constitutes the bargain regarding securing require registration under Section 17 of the Indian Registration Act, 1908 as a non-testamentary instrument creating an interest in immovable property, where the value of such property is one hundred rupees and upwards. If a document of this character is not registered it cannot be used in the evidence at all and the transaction itself cannot be proved by oral evidence either.
25. In the present case, there is no evidence to show that 8th defendant handed over his title deed Ex.A29 to the concerned official of the plaintiff bank at the time of sanction of loan by way of security and with an intention to create equitable mortgage thereby. PW.1 admittedly had no personal knowledge of transaction as he joined the plaintiff bank much later in 2001 after filing of the suit. The concerned official of the bank who was responsible for the sanction of the loan and who is said to have received title deed is not examined to show that 8th defendant in fact personally handed over the title deed expressing his intention to create mortgage by deposit. There is nothing on record to show that 8th defendant went to the bank on 31-3-1984 along with 2nd defendant. According to defendants, 8th defendant gave title deed to 2nd defendant to enable him to furnish the same to the plaintiff bank as desired by them for the purpose of verifying the solvency of 8th defendant, who figured as a guarantor. The said plea is plausible considering the fact that 8th defendant in fact stood as guarantor and there is no document executed by him expressing his intention of creating a mortgage by deposit of title deed. In fact, the evidence of DWs.1 and 2 to the effect that 8th defendant gave the title deed to the 2nd defendant and that 2nd defendant furnished the same to the bank is not refuted by the plaintiff, as no evidence in rebuttal is adduced. The evidence on record would only show that the 2nd defendant furnished the title deed to the bank. The 2nd defendant cannot offer to create a mortgage in respect of the property belonging to 8th defendant. The intention with which the document is furnished is the essence of the transaction. The expression of such intention on the part of 8th defendant is not discernible from the evidence on record. The single circumstance heavily relied upon by the plaintiff that the document was allowed to remain with the plaintiff by 8th defendant without taking return of the same does not necessarily lead to any interference that the document was deposited with an intention to create a mortgage. Even in the written statement, the defendants have pleaded that they have been making repeated requests for return of the document, but the plaintiff failed to do so. DWs.1 and 2 gave evidence in support of the said plea and their evidence remains un-contraverted, as none connected with the suit transaction is examined by the plaintiff. The fact that the document was allowed to remain with the plaintiff bank all these years by itself cannot be taken as proof of creation of equitable mortgage, in the absence of any evidence supporting the said transaction. Under those circumstances, it must be held that the plaintiff has miserably failed to establish that a transaction of creation of equitable mortgage by deposit of title deed by 8th defendant has in fact taken place. It follows that in the absence of any such mortgage, the suit filed in 1996 beyond the period of three years from the date the last part payment was made or the date of acknowledgment for the last payment, is clearly barred by limitation.
26. In the circumstances and for the reasons stated above, the judgment and decree dated 15-4-2002 passed by the trial Court in OS No. 90 of 1996 dismissing the suit as barred by limitation, do not call for any interference.
27. In the result, the appeal is dismissed with costs.